SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
_X_ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-13470
---------------------------------------------------
NANOMETRICS INCORPORATED
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2276314
- ------------------------------- -------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
310 DeGuigne Drive, Sunnyvale, CA 94086
- ------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 746-1600
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- --------
At July 14, 2000 there were 11,337,926 shares of common stock, no par value,
issued and outstanding.
1
NANOMETRICS INCORPORATED
INDEX
Part I. Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 ...................... 3
Consolidated Statements of Income -
Three months and six months ended
June 30, 2000 and 1999 ................................... 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 1999 .................. 5
Notes to Consolidated Financial
Statements ............................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk ........................................ 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders ...... 10
Item 6. Exhibits and Reports on Form 8-K ......................... 10
Signatures ................................................................. 11
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NANOMETRICS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share amounts)
(Unaudited)
June 30, December 31,
ASSETS 2000 1999
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 27,585 $ 3,442
Short-term investments 68,362 14,698
Accounts receivable, net of
allowances of $422 and $425 14,642 11,435
Inventories 10,790 9,460
Deferred income taxes 1,787 1,722
Prepaid expenses and other 2,726 1,196
-------- --------
Total current assets 125,892 41,953
PROPERTY, PLANT AND EQUIPMENT, Net 2,906 2,998
DEFERRED INCOME TAXES 115 135
OTHER ASSETS 1,752 1,324
-------- --------
TOTAL ASSETS $130,665 $ 46,410
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,826 $ 2,412
Accrued payroll and related expenses 1,422 751
Other current liabilities 1,946 1,721
Income taxes payable 2,288 464
Current portion of debt obligations 1,396 584
-------- --------
Total current liabilities 10,878 5,932
DEFERRED RENT 22 35
DEBT OBLIGATIONS 1,970 2,288
-------- --------
Total liabilities 12,870 8,255
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 25,000,000 shares
authorized; 11,317,894 and 9,163,998 outstanding 91,321 17,277
Retained earnings 26,365 20,608
Accumulated other comprehensive income 109 270
-------- --------
Total shareholders' equity 117,795 38,155
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $130,665 $ 46,410
======== ========
See Notes to Consolidated Financial Statements
3
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
NET REVENUES:
Product sales $ 16,499 $ 6,468 $ 31,444 $ 11,733
Service 1,764 1,055 2,875 1,979
-------- -------- -------- --------
Total net revenues 18,263 7,523 34,319 13,712
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 6,643 2,984 12,821 5,536
Cost of service 1,626 1,017 3,021 2,121
Research and development 2,374 1,094 4,119 2,110
Selling 2,396 1,309 4,756 2,586
General and administrative 1,006 724 2,005 1,365
-------- -------- -------- --------
Total costs and expenses 14,045 7,128 26,722 13,718
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 4,218 395 7,597 (6)
OTHER INCOME (EXPENSE):
Interest income 1,415 174 1,891 312
Interest expense (20) (20) (41) (41)
Other, net 129 (42) (11) (93)
-------- -------- -------- --------
Total other income, net 1,524 112 1,839 178
-------- -------- -------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 5,742 507 9,436 172
PROVISION FOR INCOME TAXES 2,238 203 3,679 69
-------- -------- -------- --------
NET INCOME $ 3,504 $ 304 $ 5,757 $ 103
======== ======== ======== ========
NET INCOME PER SHARE:
Basic $ .31 $ .03 $ .55 $ .01
======== ======== ======== ========
Diluted $ .28 $ .03 $ .49 $ .01
======== ======== ======== ========
SHARES USED IN PER SHARE
COMPUTATION:
Basic 11,295 8,757 10,494 8,729
======== ======== ======== ========
Diluted 12,415 9,177 11,647 9,190
======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
4
NANOMETRICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended
June 30,
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,757 $ 103
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 256 103
Deferred rent (13) 13
Deferred income taxes (45) 11
Changes in assets and liabilities:
Accounts receivable (3,337) 1,353
Inventories (1,367) 1,483
Prepaid income taxes -- 904
Prepaid expenses and other (2,082) 132
Accounts payable accrued and other current liabilities 2,342 (486)
Income taxes payable 2,814 --
-------- --------
Net cash provided by operating activities 4,325 3,616
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (64,518) (13,870)
Sales/maturities of short-term investments 10,859 9,913
Purchases of property, plant and equipment (135) (64)
Other assets -- --
-------- --------
Net cash used in investing activities (53,794) (4,021)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing 828 --
Repayments of debt obligations (231) (635)
Issuance of common stock 73,045 350
-------- --------
Net cash provided by (used in) financing activities 73,642 (285)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (30) 145
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS 24,143 (545)
CASH AND EQUIVALENTS, beginning of period 3,442 1,518
-------- --------
CASH AND EQUIVALENTS, end of period $ 27,585 $ 973
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 39 $ 42
======== ========
Cash paid for income taxes $ 695 $ --
======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
5
NANOMETRICS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Consolidated Financial Statements
The consolidated financial statements include the accounts of
Nanometrics Incorporated and its wholly-owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated.
While the quarterly financial statements are unaudited, the financial
statements included in this report reflect all adjustments (consisting only of
normal recurring adjustments) which Nanometrics considers necessary for a fair
presentation of the results of operations for the interim periods covered and of
our financial condition at the date of the interim balance sheet. The operating
results for interim periods are not necessarily indicative of the operating
results that may be expected for the entire year. The information included in
this report should be read in conjunction with the information included in
Nanometrics' 1999 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC staff's views on selected revenue
recognition issues. The guidance in SAB 101 must be adopted during the fourth
quarter of fiscal 2000 and the effects, if any, are required to be recorded
through a retroactive, cumulative-effect adjustment as of the beginning of the
fiscal year, with a restatement of all prior interim quarters in the year. Our
management has not completed its evaluation of the effects, if any, that SAB 101
will have on the Company's income statement presentation, operating results or
financial position.
Note 2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
June 30, December 31,
2000 1999
------- -------
Raw materials and subassemblies $ 7,806 $ 3,775
Work in process 1,713 1,092
Finished goods 1,271 4,593
------- -------
$10,790 $ 9,460
======= =======
Note 3. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
June 30, December 31,
2000 1999
------ ------
Commissions payable $ 313 $ 247
Accrued warranty 591 482
Other 1,042 992
------ ------
$1,946 $1,721
====== ======
6
Note 4. Shareholders' Equity
Secondary Offering - In March 2000, Nanometrics completed a public offering and
issued 2,012,500 shares of its Common Stock to the public at a price of $38.50
per share. Nanometrics received net proceeds of approximately $72.4 million in
cash.
Net Income Per Share - The reconciliation of the share denominator used in the
basic and diluted net income per share computations is as follows (in
thousands):
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
Weighted average common shares
outstanding-shares used in basic
net income per share computation 11,295 8,757 10,494 8,729
Dilutive effect of common stock equivalents,
using the treasury stock method 1,120 420 1,153 461
------ ------ ------ ------
Shares used in dilutive net income
per share computation 12,415 9,177 11,647 9,190
====== ====== ====== ======
During the three and six month periods ended June 30, 2000 and 1999,
Nanometrics had common stock options outstanding which could potentially dilute
basic net income per share in the future, but were excluded from the computation
of diluted net income per share as the common stock options' exercise prices
were greater than the average market price of the common shares for the period.
At June 30, 2000, 289,000 common stock options with a weighted average exercise
price of $41.45 per share were excluded from the diluted net income per share
computations as their exercise prices were greater than the average market price
of the common shares for the period.
Note 5. Comprehensive Income
For the three months ended June 30, 2000 and 1999, comprehensive
income, which consisted of net income for the periods and changes in accumulated
other comprehensive income, was $3,310,000 and $309,000, respectively. For the
six months ended June 30, 2000 there was a comprehensive income of $5,596,000
compared to a comprehensive loss of $12,000, for the same period in 1999.
Note 6. Subsequent Event
In July 2000, Nanometrics purchased a building in Milpitas, California
that will become its new corporate headquarters. The building is approximately
133,000 square feet in size and will support our manufacturing, engineering,
customer service, sales, marketing and finance activities in the U.S. The
purchase price for the building was $21,100,000 and additional improvements to
the building are estimated to cost approximately $14,000,000. We expect to
complete the improvements and move into the building by the fourth quarter of
2000.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Total net revenues for the three months ended June 30, 2000 were
$18,263,000, an increase of $10,740,000 or 143% from the comparable period in
1999. For the six months ended June 30, 2000, total revenues of $34,319,000
increased by $20,607,000 or 150% from the comparable period in 1999. Product
sales of $16,499,000 and $31,444,000 for the three months and six months ended
June 30, 2000, respectively, increased $10,031,000 or 155% and $19,711,000 or
168%, respectively, as compared with the same periods during 1999. The higher
levels of product sales resulted from increased shipments of Nanometrics'
products in the U.S. and Far East due primarily to stronger demand in the
semiconductor industry. Service revenue of $1,764,000 and $2,875,000 for the
three months and six months ended June 30, 2000, respectively, increased
$709,000 or 67% and $896,000 or 45%, respectively, as compared to the same
periods in 1999 as a result of higher service sales in the U.S. and the Far
East.
Cost of product sales as a percentage of product sales decreased to 40%
in the second quarter of 2000 from 46% in the second quarter of 1999 and
decreased to 41% in the six months ended June 30, 2000 from 47% for the same
period in 1999 primarily because of higher sales volume in 2000 resulting in
lower per unit manufacturing costs. Cost of service as a percentage of service
revenue decreased to 92% in the second quarter of 2000 from 96% in the second
quarter of 1999. Cost of service as a percentage of service revenue decreased to
105% in the six months ended June 30, 2000 from 107% for the same period in
1999.
Research and development expenses for the three month and six month
periods ended June 30, 2000 increased by $1,280,000 or 117% and $2,009,000 or
95% respectively, compared to the same periods in 1999 resulting primarily from
increased headcount and related expenses for the development of new and enhanced
products.
Selling expenses for the three month and six month periods ended June
30, 2000 increased by $1,087,000 or 83% and $2,170,000 or 84% respectively,
compared to the same periods in 1999 primarily because of increased headcount,
commission expenses and other expenses associated with higher sales levels.
General and administrative expenses for the three month and six month
periods ended June 30, 2000 increased $282,000 or 39% and $640,000 or 47%
compared to the same periods in 1999 primarily as a result of higher spending
associated with the increased level of operations.
Total other income, net for the three month and six month periods ended
June 30, 2000 increased $1,412,000 or 1261% and $1,661,000 or 933% respectively,
from the comparable periods in 1999 due primarily to higher interest income
resulting from higher average short-term investments generated from the net
proceeds received from the public offering of common stock in March 2000.
As a result of the above, Nanometrics' income from operations was
$4,218,000 and net income was $3,504,000 for the second quarter of 2000 compared
to income from operations of $395,000 and net income of $304,000 for the same
period in 1999. For the first six months of 2000, Nanometrics' income from
operations was $7,597,000 and net income was $5,757,000 which compared to a loss
from operations of $6,000 and net income of $103,000 for the same period in
1999.
Liquidity and Capital Resources
At June 30, 2000, Nanometrics had working capital of $115,014,000
compared to $36,021,000 at December 31, 1999 an increase of $78,993,000. This
increase is primarily a result of cash generated from financing activities of
$73,642,000 during the first six months of 2000 resulting primarily from the
$72,367,000 in net proceeds received from the public offering of Common Stock in
March 2000 and from option exercises. Operating activities for the first six
8
months of 2000 provided cash of $4,325,000 primarily from net income, while the
purchases of short-term investments used $64,518,000, capital expenditures used
$135,000, debt repayment used $231,000. In July 2000, Nanometrics purchased a
larger facility for its U.S. operations. The total cost of the facility and
improvements is estimated to be approximately $35,000,000. We believe working
capital including cash and short-term investments of $95,947,000 at June 30,
2000 will be sufficient to meet our needs at least through the next twelve
months. The current ratio at June 30, 2000 was 11.6 to 1.
Forward Looking Statements
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934. These statements involve risks and
uncertainties and actual results could differ materially as a result of a number
of factors including demand for Nanometrics' products, which is affected by
factors including the cyclicality of the semiconductor, magnetic recording head
and flat panel display industries served by Nanometrics, patterns of capital
spending by customers, technological changes in the markets served by
Nanometrics and its customers, market acceptance of products of both Nanometrics
and its customers, the timing, cancellation or delay of customer orders and
shipments, competition, including competitive pressure on product prices and
changes in pricing by Nanometrics' customers or suppliers, fluctuation in
foreign currency exchange rates particularly the Japanese yen, the proportion of
direct sales versus sales through distributors and representatives, market
acceptance of new and enhanced versions of Nanometrics' products, the timing of
new product announcements and releases of products by Nanometrics or its
competitors, including our ability to design, introduce and manufacture new
products on a timely and cost effective basis, the size and timing of
acquisitions of business, products or technologies, fluctuations in the
availability and cost of components and subassemblies, the outcome of patent
infringement discussions and the factors set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Risk
Factors" in the 1999 Annual Report on Form 10-K. Nanometrics undertakes no
obligation to update forward looking statements made in this report to reflect
events or circumstances after the date of this report or to update reasons why
actual results could differ from those anticipated in such forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, which include changes in
foreign currency exchange rates and interest rates. We do not use derivative
financial instruments. Instead, we actively manage the balances of current
assets and liabilities denominated in foreign currencies to minimize currency
fluctuation risk. As a result, a hypothetical 10% change in the foreign currency
exchange rates at June 30, 2000 would not have a material impact on our results
of operations. Our investments in marketable securities are subject to interest
rate risk but due to the short-term nature of these investments, interest rate
changes would not have a material impact on their value at June 30, 2000. We
also have fixed rate yen denominated debt obligations in Japan that have no
interest rate risk. At June 30, 2000, our total debt obligation was $3,366,000
with a long-term portion of $1,970,000. A hypothetical 10% change in interest
rates at June 30, 2000 would not have a material impact on our results of
operations.
9
NANOMETRICS INCORPORATED
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The annual meeting of shareholders was held on May 31, 2000.
B. The following directors were elected to the board of directors:
Vincent J. Coates
Nathaniel Brenner
Norman V. Coates
John D. Heaton
Edmond R. Ward
C. The following matters were voted upon at the annual meeting:
For Against Abstain
--------- ------- -------
1. To elect the following directors
to serve for the ensuing year:
Vincent J. Coates, Chairman 7,254,127 0 251,904
Nathaniel Brenner, Director 7,254,127 0 251,904
Norman V. Coates, Director 7,254,127 0 251,904
John D. Heaton, Director 7,254,127 0 251,904
Edmond R. Ward, Director 7,254,127 0 251,904
2. To approve adoption of the Company's
2000 Employee Stock Option Plan and
the reservation of 1,250,000 shares of
common stock for issuance thereunder. 4,882,660 1,187,376 395,845
3. To approve adoption of the Company's
2000 Director Stock Option Plan and
the reservation of 250,000 shares of
common stock for issuance thereunder. 5,883,631 185,305 396,945
4. To approve an amendment to the
Company's Employee Stock Purchase
Plan to increase the number of shares
of common stock reserved for future
issuance by 150,000. 5,959,231 111,005 395,645
5. To ratify the appointment of
Deloitte & Touche LLP as independent
auditors for the fiscal year ending
December 31, 2000. 7,502,231 2,300 1,500
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Ex. 27 - Financial Data Schedule
B. Reports on Form 8-K.
None.
10
NANOMETRICS INCORPORATED
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NANOMETRICS INCORPORATED
(Registrant)
/s/ Vincent J. Coates
- ----------------------------
Vincent J. Coates
Chairman of the Board
/s/ John Heaton
- ----------------------------
John Heaton
Chief Executive Officer
/s/ Paul B. Nolan
- ----------------------------
Paul B. Nolan
Chief Financial Officer
Dated: August 7, 2000
11